The period after alimony has been depleted can be a worrisome time. This week, we look at a divorced woman who is trying to get a better understanding of her finances.

The situation

Judy, 62, wrote in with many hesitations because of horror stories she has heard from friends and family. Before her divorce three years ago, Judy never managed the family’s finances. Now, she worries that she is missing several pieces of the puzzle. An actress and voice coach, she struggles to maintain a steady workflow and needs a process for budgeting that works with a variable monthly income.

During the divorce process, her attorney hired a Certified Divorce Financial Analyst. Through the help of this analyst, she was able to itemize monthly living expenses and place the money from the divorce into a Sharebuilder IRA. Judy received a one-time, lump-sum maintenance payment of $200,000 for the IRA.

Judy’s additional assets include: $8,487 in checking; $18,963 split between two savings accounts; $12,857 in a Roth IRA; $14,882 in a traditional IRA; and $16,803 in a TransAmerica Annuity.

She currently earns approximately $25,000 per year through commercial spots and part-time voice lessons. Judy’s house is valued at $255,000, but needs close to $40,000 in repairs.

The biggest concern for Judy is where she should be investing her money to stretch for at least the next 30 years. She estimates she needs approximately $2,400 a month to live on, not including money to travel occasionally.

Recommendations

Judy’s situation is not uncommon, and there are a few things in her favor that can potentially provide additional income.

One of the first things Judy can look into is a reverse mortgage. She would have the opportunity to supplement her income by converting part of the equity in her home into cash without having to sell her home. Judy mentioned in her interview the importance of staying near family; a reverse mortgage would make this a possibility.

Judy is extremely hesitant about this suggestion, but I recommend that she research it and strongly consider the financial relief it can provide. I also recommend that Judy look into consolidating her accounts into a diversified portfolio with moderate risk.

Judy intended to use the Certified Divorce Financial Analyst after her divorce, but discovered that the analyst is also a broker; Judy wanted to use an independent certified financial planner. I recommend she visit plannersearch.org, a financial-planner search engine sponsored by the Financial Planning Association, to find an independent planner in her area. She also mentioned managing her investments on her own — but given her artistic background, this is not a good decision.

When Judy is ready to collect Social Security — ideally, she’ll wait until age 70 — she will be able to collect on her record or on her ex-husband’s, whichever is greater, because they were married for more than 10 years. Judy’s Social Security benefit at age 70 will be $1,122 a month, but before claiming it, she will want to research the possible benefit that her ex-husband’s Social Security could provide.

With professional help and close attention to detail, Judy can create a plan that works best for her long term.

Pam Dumonceau has 21 years of experience in the financial planning industry. What’s the Plan is not a substitute for financial planning or dedicated professional advice.

What’s your plan?

Ask Pam what you should do — e-mail whatstheplan@consistentvalues.com to get advice. Names and identifying information are changed to protect confidentiality.

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